The Snitch

How can you stay afloat when your financial situation is sinking?

While a layoff may be our greatest fear in this recession, a pay cut comes close to second. In a survey conducted by Hewitt in April this year, 37% of 53 companies in Singapore say they have implemented a recruitment freeze, and another 33% say they have plans to do so in the May-July period. Although 66% of overall companies  reported no layoffs, the service sector saw 18.2%  looking to retrench staff.

That said, a pay cut, unpaid furlough, or diminished working hours can be a difficult adjustment. In an article on Money Watch, Richard Sine suggests four steps to minimise the effects of a pay cut.

Step One: Get the full story

At the news of a pay cut, it is important to get past the emotions and understand what your employer is actually offering so you can plan ahead. Bosses often don’t make things clear, and it is best for you to review the company’s HR policies or ask the HR department about the possible effects a pay cut has on your benefits. Perks like health insurance, severance packages and bonuses are calculated based on salary and/or work hours, which a pay slash or work reduction may eliminate. It is hence important to fully understand what a pay cut means.

Step Two: Know your rights

Make sure your boss is treating you fairly. There is always a possibility that a manager is using the recession as an excuse to penalise certain workers unfairly or even illegally. If you suspect discrimination, bring it up to the company’s HR department before taking it out of the company.

Step Three: Try to negotiate something in return

Bosses are usually forced to cut your hours or pay because they have little choice. They still want you to remain loyal and productive. Hence, it may be a good time to negotiate for something in return, such as a more flexible work schedule, discounts on company products or services, or allowing you to retain some of the benefits you were set to lose. Approach your boss about this. If it fails, consider banding together with some colleagues for more heft.

Step Four: Adjust your finances

A pay cut may be temporary, but depending on the economy and the company’s fortune, it may be a long time. It is thus important to make adjustments to your finances. Sine provides a list of strategies for consideration:

* Divide all your expenses into “mandatory” and “discretionary.” Then, reduce your discretionary spending and get an idea of how long you can continue paying your mandatory expenses with your reduced salary.

* Increase your savings cushion to prepare for the possibility of a layoff.

* Maintain your access to credit. Make sure you occasionally use each of your credit cards so they don’t get closed due to inactivity. But pay the balance in full!

* To make up for your lost spending power, take advantage of every last benefit your employer offers, such as transit reimbursements, flexible spending accounts for health or childcare, and company-sponsored discounts.

Related article: Penny pinching tips for the unemployed